Description

We argue that a stronger emphasis on macrofinancial risk could provide stabilization benefits. Simulations results suggest that strong monetary reactions to accelerator mechanisms that push up credit growth and asset prices could help macroeconomic stability. In addition, using a macroprudential instrument designed specifically to dampen credit market cycles would also be useful. But invariant and rigid policy responses raise the risk of policy errors that could lower, not raise, macroeconomic stability. Hence, discretion would be required.

Taxonomy

Asset prices , Banks and banking , Capital markets , Central banks , Economic policy , Financial institutions and markets , Monetary policy

More publications in this series: Working Papers

More publications by: Pau Rabanal ; Prakash Kannan ; Alasdair Scott